The options for council tax reform – from revaluation to land tax

Andy Burnham has said his Government faces “big decisions” about council tax, as he criticised the unfairness of the current system. The Prime Minister said there were households in Greater Manchester disproportionately paying “a much higher council tax than people living in much larger homes in London”. Treasury officials have been examining options for reforming council tax, as revealed by The i Paper on Sunday. No 10 denied the Government was “actively considering” replacing it, before pointing out that any decisions on tax are “a matter for the Chancellor to set out at fiscal events”. So, what are the options for reforming council tax? How the system works currently Introduced in 1993, council tax replaced the deeply unpopular poll tax or Community Charge, which helped bring about the end of Margaret Thatcher’s premiership. Every home in England is placed into one of eight valuation bands, A to H, based on what it would have sold for on the open market on 1 April 1991. Discounts apply to some households, including a 25 per cent reduction for people living alone.The valuations and bands are set nationally, currently via the Valuation Office Agency, but the money is collected and spent locally, largely on social care, waste collection and other council services. Council tax is forecast to raise £50.9bn in England in 2025-26, according to the Office for Budget Responsibility – equivalent to around £1,770 per household. Why some MPs are calling for reform Around 100 Labour MPs, including the 40-strong Red Wall group, are pushing for the current system to be replaced. More than a dozen MPs, mostly from northern seats, also wrote to former chancellor Rachel Reeves last autumn urging her to scrap council tax altogether. Chris Webb, the MP for Blackpool South and a signatory of that letter, told The i Paper earlier this year that it “cannot be right” that his constituents pay more “than the owner of a £10m mansion in Mayfair”. Supporters of reform point out that council tax bands have not been updated since they were set using property values from April 1991. However, average house prices in London have risen more than six times over since 1995, compared with just under three times in the north-east, according to the Institute for Fiscal Studies (IFS) analysis. And the campaign group Fairer Share found that nine of the ten constituencies with the highest council tax burden relative to property value are in the North. The options for replacing council tax A proportional property tax: The model with the most parliamentary backing, put forward by the Fairer Share campaign group, would involve scrapping both council tax and stamp duty and replacing them with a flat 0.48 per cent annual charge on a home’s current value. A homeowner with property worth £500,000 would pay around £2,400 a year under this system, while a £250,000 home would incur a charge of £1,200. Analysis by the Institute for Public Policy Research (IPPR) has suggested homeowners in Westminster could pay around £2,600 more a year on average than they pay in council tax, rising to around £4,200 more in Kensington and Chelsea. A proportional property tax would be paid directly by homeowners, although some of the cost would likely be passed on to renters. A land value tax: This is the model that Burnham has previously expressed support for. It would charge owners only on the value of the land a property sits on, rather than the building. He first raised the idea during the 2010 Labour leadership contest, when he argued a land value tax could replace stamp duty. Burnham has previously branded stamp duty, tax paid when buying property or land, “a tax on the aspirations of young people” trying to put down roots. Supporters argue the model would not penalise owners for improving their homes, since the charge is based on land value alone. A straightforward revaluation: A more modest option modelled by the IFS would leave the existing bands largely in place but update the values underpinning them. The IFS calls this the “bare minimum” of reform needed. Most bills would increase or decrease by less than 10 per cent under this model, though some areas could see sharper rises. Households in Hackney, for example, could see their bills increase by 45 per cent under this approach, due to the sharp rise in house prices in the area since 1991. Why nothing is settled No 10 has stopped short of denying that officials looked at options, but said it is “not true” that reform is being “actively considered”. Burnham has not endorsed a specific model, and any change would need to sit within Labour’s 2024 manifesto, which did not address council tax directly. Lord Blunkett, one of Burnham’s closest allies, has warned that a land value tax specifically would be “politically problematic” and could “dislocate the system” by creating winners and losers across the housing market. “It will not happen and cannot happen in the immediate future,” he told The i Paper. Pressed by the BBC on his own appetite for change, Burnham said: “I will stick to the fiscal rules.”